On December 8, 2016 Issuers of municipal bonds received final issue price rules from the Department of Treasury and the Internal Revenue Service (“IRS”). These rules were published in the Federal Registry one day later, and will become effective 180 days later, on June 7, 2017.

Many organizations, including the Government Finance Officers Association (“GFOA”), praised the Treasury for improvements made in the final rule versus the prior proposed rule changes, but many questions remain about the competitive bond sale pro-cesses. The GFOA’s debt committee asked John Cross, Treasury’s Associate Tax Legislative Counsel, about possible discouragement of competitive bonds sales or problems for issuers if underwriters don’t follow the new rules.

Cross said, "As a policymaker, we think that competitive sales promote competi-tion and price transparency and we wanted to provide a workable rule to accommodate this important market sector."
General rule under the final rule establish the issue price at which the first 10% of a maturity of bonds is actually sold to the public. Under certain circumstances the Under-writer cannot sell Bonds at a price higher than the initial offering price (IOP) for bond sales during the five business days after the sale date. The five-day provision is an anti-flipping or an anti-abuse provision.

There are special rules for competitive sales that state an issuer may treat the rea-sonably expected IOP of the bonds that will be sold to the public as the issue price if the winning underwriter provides a certification of their reasonably expected IOP which it based its bid. In order to use the reasonable expectation price ,issuers of competitive deals must also receive a minimum of three competitive bids from established un-derwriters and the issuer must award the bid on highest price or lowest interest cost. Under the new rules Issuers would have the option of using any of the rules until the day of closing for their bond transaction. Most by now have read about the new issue price rules and, if you have not already, we encourage you to do more research and talk with your munici-pal advisor ahead of the implementation date.